Post Cold War Tax Increases Depart from History

October 9, 1997

Following each of America's wars during the Twentieth Century, war-time federal budget deficits were reduced to the point of becoming surpluses in peace time. But that hasn't happened in the post-Cold War 1990s, economists point out.

In the post-World War I era, the government experienced a budget surplus by 1922 of $700,000, after running a deficit of $13.4 billion in 1919.

After World War II, an $11.8 billion surplus was achieved in 1948, following a deficit of $47.6 billion in 1945.

The Korean War saw a deficit of $6.5 billion in 1953 followed by a surplus of $3.9 billion by 1956.

Following the Vietnam War, a $3 billion deficit in 1969 was followed by a $23 billion surplus in 1972.

We come to the end of the Cold War and policies change. As those efforts were about to wind down, the federal government spent $152 billion more in 1989 than it took in. Rather than collecting more and spending less, the deficit had risen to $290 billion by 1992.

The post-Cold War era is also unique in that this is the first time that tax rates have been raised -- in 1990 and 1993 -- after a war has ended. And this year's tax cut only recaptures about 20 cents on the dollar of the 1990 and 1993 increases, economists point out.